Introduction

Self-employed individuals often need to make quarterly tax payments to cover their income tax and self-employment tax obligations. This is because they do not have an employer withholding these taxes for them.

When to Make Quarterly Payments

Self-employed taxpayers generally need to make quarterly estimated tax payments if they expect to owe at least $1,000 in taxes for the year after subtracting any withholding and credits[_{{{CITATION{{{_1{How Do I Pay Quarterly Taxes? A Comprehensive Guide – TurboTax](https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-guide-to-paying-quarterly-taxes/L6p8C53xQ). The payments are due four times a year, typically on April 15, June 15, September 15, and January 15 of the following year[_{{{CITATION{{{_1{How Do I Pay Quarterly Taxes? A Comprehensive Guide – TurboTax](https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-guide-to-paying-quarterly-taxes/L6p8C53xQ).

Safe Harbor Rules

To avoid penalties, self-employed individuals should pay either:

• 90% of the current year’s tax liability, or
• 100% of the prior year’s tax liability (110% if the adjusted gross income is over $150,000)[_{{{CITATION{{{_1{How Do I Pay Quarterly Taxes? A Comprehensive Guide – TurboTax](https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-guide-to-paying-quarterly-taxes/L6p8C53xQ)

How to Calculate Quarterly Payments

Use Form 1040-ES, Estimated Tax for Individuals, to calculate the estimated tax payments[_{{{CITATION{{{_2{Estimated taxes – Internal Revenue Service](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes). The form includes a worksheet to help you determine the amount you need to pay each quarter[_{{{CITATION{{{_2{Estimated taxes – Internal Revenue Service](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes). You’ll need to estimate your income, deductions, and credits for the year[_{{{CITATION{{{_2{Estimated taxes – Internal Revenue Service](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes).

Conclusion

By making quarterly estimated tax payments, self-employed individuals can avoid penalties and manage their tax obligations more effectively. It’s important to stay on top of these payments and ensure they are made on time.

Perpetuity Calculation in Excel

Basic Theory

A perpetuity is a financial instrument that pays a consistent amount over an indefinite period[_{{{CITATION{{{_3{Self-employed individuals tax center – Internal Revenue Service](https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center). The formula for calculating the present value (PV) of a perpetuity is:

PV = C / r

Where:

• C = Cash flow per period
• r = Discount rate (interest rate per period)

Procedures

1. Determine the annual cash flow (C).

2. Identify the discount rate (r).

3. Use the perpetuity formula to calculate the present value.

Scenario with Real Data

Consider a perpetuity that pays $1,500 annually with a discount rate of 6%.

    C = $1,500
    r = 6% (or 0.06)

The calculation would be:

PV = 1500 / 0.06
     = $25,000

The present value of this perpetuity is $25,000.

Excel Table Explanation

You can set up an Excel table to perform these calculations:

The formula in the Present Value cell (C2) calculates the present value of the perpetuity.

Alternative Approaches

1. Growing Perpetuity: If the cash flow grows at a constant rate (g), the formula becomes:

PV = C / (r - g)

2. Variable Discount Rate: Adjust the discount rate periodically based on market conditions.